Category: RRSPs/Insurance Policies
Life insurance can be an important part of an estate plan, be it taken out to fund payment of anticipated tax liabilities triggered by death, to assist in supporting surviving family members, or to equalize the distribution of an estate within the context of the gift of an asset of significant value (such as a family business) to one child to the exclusion of another, who can be designated as beneficiary of the policy.
In a time when many Canadians are facing their mortality and taking the pause from normal life as an opportunity to review and update estate plans, many Canadians are turning their minds to other aspects of estate planning, including supplementing an estate plan with life insurance. A recent Financial Post article suggests that life insurance applications have doubled during the pandemic, as more Canadians take steps to plan for the unexpected during this period of uncertainty.
At the same time, premiums for new permanent life insurance policies have increased by as much as 27%. While term life insurance policies may remain a more affordable option, they too are anticipated to become more expensive, with upcoming premium increases of up to 20%. The increase in premiums has been linked to lowering interest rates and restrictions to the investment options available to insurance companies.
Other changes to life insurance during the pandemic include the exclusion of the standard medical examination required in order to obtain some types of coverage. The maximum coverage offered by many providers without a medical exam has increased to reflect limitations to the ability for applicants to safely attend an in-person examinations. For other providers and types of plans, medical examinations are simply on hold.
Lastly, insurance companies have updated intake questionnaires to include COVID-screening questions. If an applicant is experiencing potential symptoms, they may be required to wait two weeks before taking out the policy, but are not typically ineligible from coverage altogether. Some insurers, however, are no longer offering new coverage to seniors or others who are at a higher risk of complications during the period of the pandemic.
One life insurance provider has already doubled its projected COVID-19-related payouts during 2020 from the figures it had released earlier this year. While there may have been changes to certain eligibility requirements and the cost of life insurance, it remains a suitable estate planning tool for many Canadians.
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The late Donald Farb called his insurance company to renew his travel insurance policy before his trip to Florida. Mr. Farb spent about half an hour with a telephone representative from Manulife to complete the insurance application. He said “no” to a variety of questions regarding his medications and pre-existing conditions. Thereafter, the travel policy was issued on the basis of the information provided by Mr. Farb, and Mr. Farb went on his trip. While he was in Florida, Mr. Farb was unexpectedly hospitalized and he incurred over $130,000 (USD) in hospital expenses. Manulife later denied Mr. Farb’s claim for reimbursement and took the position that his policy was voided on the grounds of misrepresentation. Mr. Farb died before his insurance claim was resolved and his Estate commenced a court application to continue Mr. Farb’s dispute with Manulife.
In considering the Estate’s application, Justice Belobaba of the Ontario Superior Court of Justice reviewed the first principles of the Insurance Act and how the Act is designed to protect both the insurer and the insured. While insurance companies are protected by the insured’s duty to disclose, and the right to void coverage if there was a failure to disclose or misrepresentation, the consumer is protected by the requirement that the application process be done in writing so that the consumer will have the opportunity to review the information provided and to make any necessary corrections before the policy takes effect.
Justice Belobaba found that Manulife’s application process satisfied the requirements under the Insurance Act. He found that there was no issue with the telephone service provided by Manulife and the way that information is collected verbally from the applicant because the completed application form is emailed, in writing, back to the applicant for verification. The emailed and mailed copy of the insurance policy also contained a multitude of warnings asking the insured to review their policy carefully before traveling and that “the policy is void in the case of fraud, attempted fraud, or if you conceal or misrepresent any material fact in your application”.
As evidence before the Court, Justice Belobaba was provided with an audio recording of Mr. Farb’s telephone call with the insurance representative, and a copy of the materials that were emailed and mailed to Mr. Farb. Justice Belobaba found that Mr. Farb had two months to review his answers to the medical questions that were asked of him, and there was no evidence that Mr. Farb ever contacted Manulife to correct his answers, which was sufficient to conclude that Manulife was within its rights to void the policy.
The Estate’s application was dismissed, and you can read the full reasons for decision in Estate of Donald Farb v. Manulife, 2020 ONSC 3037, by clicking here.
Travel insurance should always be top of mind before travelling. It is a good idea to reach out to your insurance company and review your existing policy and the information contained in the underlying application before you go, especially under the present circumstances with COVID-19. The issue of whether testing and medical care for COVID-19 will be covered while abroad is important to consider before any travel plans are finalized.
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Occasionally in litigation, an innocent party will get caught in the crossfire between two litigants that have made competing claims to property held by the innocent party. The classic case is that of an insurance company in possession of the proceeds of an insurance policy, the benefit of which is claimed by two parties.
The insurer may not necessarily be a party to the litigation between the two claimants, but they are nonetheless implicated given that they hold the coveted payout. What is the insurer to do? Enter the interpleader motion.
The interpleader motion is a powerful yet rarely utilized tool that can be used by an innocent party to essentially extricate itself from a proceeding in which competing claims have been made against property held by that party. Rule 43.02 of the Rules of Civil Procedure provide that a party may seek an interpleader order in respect of personal property if,
(a) two or more other persons have made adverse claims in respect of the property; and
(b) the first-named person (being the “innocent” party),
(i) claims no beneficial interest in the property, other than a lien for costs, fees, or expenses; and
(ii) is willing to deposit the property with the court or dispose of it as the court directs.
In other words, the interpleader motion permits a party to seek an order from the court allowing that party to deposit, with the Accountant of the Superior Court of Justice, the property against which the adverse claims are being made. However, that party must not have any beneficial interest in the property being deposited, although they are entitled to have any legal fees in bringing the motion, and other reasonable expenses, paid out of that property.
Some cases have opined on whether the court hearing the interpleader motion has an obligation to assess the likelihood of success of one or both of the claims to the property at issue. In Porter v Scotia Life Insurance Co, for example, the court considered whether, notwithstanding that one of the competing claims was “without strong foundation and built upon hearsay and suspicion”, it nonetheless held that the claim was “not frivolous” and granted the interpleader order.
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The Supreme Court of Canada’s recent decision in Moore v Sweet provided meaningful clarification on the Canadian law of unjust enrichment and, in particular, the juristic reason analysis.
As it made a finding of unjust enrichment, it was not necessary for the Court to consider the second issue before it, being whether, in the absence of unjust enrichment, a constructive trust could nevertheless be imposed in the circumstances on the basis of “good conscience”.
In 1997, the Supreme Court released its decision in Soulos v Korkontzilas. That case considered situations that may give rise to a constructive trust remedy. In referring to the categories in which a constructive trust may be appropriate, which were noted to historically include where it was otherwise required by good conscience, Justice McLachlin (as she then was) stated as follows:
I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation…Within these two broad categories, there is room for the law of constructive trust to develop and for greater precision to be attained, as time and experience may dictate.
Since 1997, Soulos and the above excerpt have been interpreted inconsistently by scholars and courts of appeal throughout Canada. Some consider Soulos to restrict the availability of constructive trust remedies to only situations where there has been a finding of unjust enrichment or wrongful conduct, while others favour a more liberal interpretation.
The appellant in Moore v Sweet sought, in the alternative to a remedy on the basis of unjust enrichment, a remedial constructive trust with respect to the proceeds of the life insurance policy on the basis of good conscience. In choosing not to address this issue, Justice Côté (writing for the Majority) stated as follows:
This disposition of the appeal renders it unnecessary to determine whether this Court’s decision in Soulos should be interpreted as precluding the availability of a remedial constructive trust beyond cases involving unjust enrichment or wrongful acts like breach of fiduciary duty. Similarly, the extent to which this Court’s decision in Soulos may have incorporated the “traditional English institutional trusts” into the remedial constructive trust framework is beyond the scope of this appeal. While recognizing that these remain open questions, I am of the view that they are best left for another day.
It will be interesting to see if and when the Supreme Court ultimately chooses to determine “the open questions” regarding the availability of the remedial constructive trust. Until then, it appears that some debate regarding the circumstances in which it may be imposed will remain.
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If a party refers to a document in a pleading, the party de facto waives any privilege attaching to the document, and the document has to be produced.
That is the lesson that we are reminded of in Master Short’s decision in TTC Insurance v. MVD Law, 2018 ONSC 2611 (CanLII).
There, TTC Insurance, the insurer for the TTC, alleged that the defendant engaged in an unlawful scheme to defraud the TTC by intentionally submitting forged invoices. In the Statement of Claim, the plaintiff referred to an audit and investigation that was carried out by the plaintiff. The defendant sought production of the details and results of the audit and investigation. TTC Insurance resisted, claiming privilege.
Master Short ordered the plaintiff provide the contents and results of the audit and investigation giving rise to the claim.
Master Short cited case law to the effect that a waiver of privilege does not occur simply because a party refers to the receipt of legal advice, or where a party states that they relied on legal advice. However, it is waived where the party uses the legal advice as a substantive element of the claim. “It is waived when the client relies on the receipt of advice to justify conduct in respect to an issue at trial.”
It should also be noted that once solicitor-client privilege is waived, the waiver applies to the entire subject-matter of the communications.
Master Short’s succinct conclusion was that a party is entitled to have produced for his inspection any document referred to in a pleading or affidavit delivered by another party whether or not that document would otherwise be privileged. Master Short also relied on Rule 30.04(2) which provides that a request to inspect documents may be used to obtain the inspection of any document in another party’s possession, control or power that is referred to in the originating process, pleadings or an affidavit served by the other party.
Thus, be careful of what you plead: if you plead a document, you will have to produce it, privileged or not.
As Master Short set out in the preamble to his decision:
The Moving Finger writes; and, having writ,
Moves on: nor all they Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.
Have a great weekend.
The practice of injecting policy considerations into court decisions has long been a tenet of the Ontario judiciary. However, such considerations may arguably raise questions that go beyond the scope of the decision. Cotnam v Rousseau, 2018 ONSC 216, is one such case.
In Cotnam, the Court was tasked with determining whether a pre-retirement death benefit received by a surviving spouse was available to be clawed back into an Estate pursuant to section 72 of the Succession Law Reform Act (the “SLRA”). The Respondent took the position that section 48 of the Pension Benefits Act (the “PBA”) sheltered the death benefit from being clawed back given that she was the spouse of the Deceased. The Court disagreed and held that such benefits ought to be available for claw back in order to prevent irrational outcomes resulting from their exclusion.
In the context of the facts at play in Cotnam, the Court reasoned in favour of equity, in particular, to ensure a dependant disabled child of the Deceased was properly provided for. However, the Court’s reasons appear to gloss over a fundamental conflict between the SLRA and the PBA, a clash about which the estates bar might have appreciated some judicial commentary. Specifically, the Court held that the provisions of the SLRA ascribing pension death benefits as available to satisfy a claim of dependant’s relief ought to prevail over the PBA’s provisions sheltering them from claw back.
Section 114 of the PBA provides that, “[i]n the event of a conflict between this Act and any other Act […] [the PBA] prevails unless the other Act states that it is to prevail over [the PBA].” The SLRA, in contrast, is silent as to whether its provisions are to prevail over those of the PBA.
However, the Court’s reasons make no mention of the interplay between section 114 of the PBA and the equities of ensuring the dependant daughter in Cotnam was properly provided for. While we may opine on the fact that the outcome in Cotnam favours equity over rote statutory interpretation, the estates bar is left to grapple with the apparent inconsistency with the intention of the Ontario legislature, and whether it will affect similar decisions going forward. As of this date, no written decisions have yet interpreted Cotnam, nor has the decision been appealed. Accordingly, it may be some time before the impact of the decision, if any, is felt.
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For many Canadians, one or more life insurance policies represent an important component of an estate plan. If a policy cannot be honoured as a result of the cause of the insured’s death, this may completely frustrate his or her testamentary wishes.
The terms of life insurance policies typically address the issue of whether a beneficiary will be entitled to the insurance proceeds in the event that an individual commits suicide. Policy terms typically include a restriction as to the payout of the policy if the insured dies by his or her own hands within a certain of number of years from the date on which the policy is taken out (most often two years).
With the decriminalization of physician-assisted death, there was initially some concern regarding whether medical assistance in dying would be distinguished from suicide for the purposes of life insurance. The preamble to the related federal legislation, however, distinguishes between the act of suicide and obtaining medical assistance in dying.
As mentioned by Suzana Popovic-Montag in a recent blog entry, the Canadian Life and Health Insurance Association suggested in 2016 that, if a Canadian follows the legislated process for obtaining medial assistance in dying, life insurance providers will pay out on policies that are less than two years old. Since then, the Medical Assistance in Dying Statute Law Amendment Act, 2017 has come into force to provide protection and clarity for Ontario patients and their families. This legislation has resulted in amendments to various provincial legislation, including the Excellent Care for All Act, 2010, a new section of which now reads as follows:
…the fact that a person received medical assistance in dying may not be invoked as a reason to deny a right or refuse a benefit or any other sum which would otherwise be provided under a contract or statute…unless an express contrary intention appears in the statute.
The amendments provided for within the legislation introduced by the Ontario government represent an important step in the recognition of physician-assisted death as a right that is distinguishable from the act of suicide. They also confirm the right of individuals who access medical assistance in dying to benefit their survivors with life insurance policies or other benefits.
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In yesterday’s blog post, I discussed Justice Gomery’s recent decision in Rehel v Methot, 2017 ONSC 7529, where the Court was asked to resolve the question of the beneficial entitlement to the Deceased’s life income fund account (the “Account”).
The Deceased named his ex-spouse, Sharon, as the beneficiary when the Account was first opened. However, in his later Will, the Deceased directed the Estate Trustee of his Estate to use the proceeds of the Account to service his debts.
Having concluded that the Sharon was not automatically entitled to the Account by operation of provincial pension benefits legislation, the residual question was whether the direction under the Will overrode the prior beneficiary designation in Sharon’s favour.
Designations Under Part III of the Succession Law Reform Act
Subsection 51(1) of the Succession Law Reform Act (the “SLRA”) states that a participant (i.e. the person entitled to designate another person to receive a benefit payable under a plan on the participant’s death) may designate a person to receive a benefit payable under a “plan” (as defined under the Act) by an instrument signed by him or her or by Will. Subsection 51(1) also states that the person may also revoke the designation by either of these methods.
However, pursuant to subsection 51(2) of the SLRA, a designation in a Will is only effective if it relates “expressly to a plan, either generally or specifically.” Similarly, under subsection 52(1), a revocation in a Will is effective to revoke a designation made by instrument “only if the revocation relates expressly to the designation, either generally or specifically.”
Subsection 52(2) goes on to state that a later designation revokes an earlier designation, to the extent of any inconsistency.
The Parties’ Positions
In Rehet, Sharon argued that the instructions under the Will were not an effective revocation under subsection 52(1), as they do not mention the earlier designation in Sharon’s favour.
Conversely, the Estate Trustee argued that the designation does not have to meet the formal requirements of subsection 52(1), so long as it complies with subsections 51(2) and 52(2). In other words, a designation should prevail if it is a later designation that relates expressly to a plan.
Both parties relied on the Court of Appeal’s decision in Laczova Estate v Madonna House (2001), 207 DLR (4th) 341, where the testator made a holograph will where she listed two RSPs as her assets and then made bequests to twenty two beneficiaries. The estate trustee in Laczova similarly argued that the reference to the RSPs under the testator’s will was a designation under subsection 51(2) and revoked the earlier designation in accordance with subsection 52(2).
In Laczova, the Court of Appeal rejected the estate trustee’s argument because the testator had not designated a specific person or persons as beneficiaries of her RSPs under her later Will.
Justice Gomery’s Decision
Although the Court of Appeal’s decision in Laczova had favoured the prior designated beneficiaries, Justice Gomery held that the Court’s conclusions supported the Estate Trustee’s position in Rehel.
Justice Gomery noted that the Court of Appeal had not rejected the logic of the Estate Trustee’s argument regarding the operation of subsections 51(2) and 52(2), despite finding in favour of the prior designated beneficiaries.
In addition, Justice Gomery held that the Court of Appeal’s reasoning in Laczova suggested that the rationale for subsection 51(2) is to give estate trustees and financial institutions sufficient information to act on the directions in a Will.
In the present circumstances, the Court concluded that there was no ambiguity as to the Deceased’s intentions. The Court concluded that the Will revoked the earlier designation, and that the designation under the Deceased’s Will prevailed.
Thank you for reading,
Umair Abdul Qadir
Beneficiary designations for life insurance policies can be an integral part of one’s estate plan. As designated policy proceeds typically pass outside of an estate, and are not subject to costly probate fees, policy holders often use these designations as a strategic method to transfer assets upon their death.
When a policy holder dies, a common challenge is determining where and what policies were held by the deceased. Records of insurance policies are often lost or misplaced by the time of a party’s death. This poses a problem for potential beneficiaries who are attempting to ascertain their entitlement under such policies.
Fortunately, the Canadian Life and Health Insurance Association’s OmbudService for Life and Health Insurance (“OLHI”) offers a valuable service to assist with locating missing policies of a deceased. With the submission and approval of an online application, OLHI will administer requests for a policy search to its extensive member base of Canadian Life and Health Insurance Companies. OLHI’s members account for 99% of the life and health insurance industry in Canada. Notably, if a policy was either granted by a non-member company, or was purchased outside of Canada, the policy will not be found by OLHI’s search. OLHI is also the only organization in Canada to offer this service.
OLHI outlines four requirements that must be satisfied before they will conduct a search:
- More than three months, but less than two years, must have passed since the policy-holder’s death;
- The applying party must already have searched for the policy themselves;
- The applying party must have evidence that a policy exists; and
- OLHI must find that it is reasonable to conduct the search.
OLHI provides an extensive list of suggestions for how to search for a policy or evidence proving a policy’s existence. An applying party is encouraged to:
- Explore the deceased’s storage places, such as safety deposit boxes and filing cabinets;
- Examine the deceased’s papers for policies, statements or notices from an insurance company;
- Review the deceased’s financial records for evidence of any premium payments, or purchases of life or travel insurance;
- Contact the deceased’s insurance agent, lawyer, account, and/or other advisor;
- Contract the deceased’s employer or former employer, or any professional associations of which the deceased was a member; and
- If the deceased received group disability benefits, contact the provider to determine if life insurance was included as a benefit.
Once requirements 1-3 (listed above) have been satisfied, an applying party may submit a two-step, online application form located at OLHI’s website. In addition to asking for the applicant’s basic contact information and the first and last name of the deceased, the form requires the applicant to summarize their evidence in support of the insurance policy’s existence.
If OLHI determines that a search is reasonable after reviewing the submitted application, they will send a search request to all OLHI insurance company members. An insurance company will only contact an applicant if they locate the deceased’s policy. While any interested party can apply for a search request, companies can provide information on a policy exclusively to the deceased’s executor, lawyer, beneficiary or heir.
For more information on searching for a policy of a deceased, visit OLHI’s website and submit an application.
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Beneficiary designations for a life insurance policy can be an important estate planning tool. However, as with any testamentary document or disposition, questions can arise about the insured’s actual intentions after death.
In the recent decision of Sun Life v Nelson Estate et al., 2017 ONSC 4987, the Court was asked to resolve such an ambiguity by considering the validity of an insurance declaration under the deceased’s Will and the validity of a change of beneficiary designation on file with the insurer.
Juanita (the “Deceased”) died in December 2009. The Deceased was entitled to group life insurance coverage with Sun Life in the amount of $148,500.00. Following the Deceased’s death, Sun Life deposited the proceeds of the policy into Court. The Deceased’s two children (the “Respondents”) brought a Motion for a declaration that they were solely entitled to the proceeds.
The Deceased had been married to the respondent, Justin Nelson (“Justin”), since 2006. Following the Deceased’s death, Justin signed an acknowledgment that the Respondents were entitled to the proceeds of the policy. He had made no claim to the proceeds since the Deceased’s death, and his whereabouts were unknown as of the hearing of the Motion.
Beneficiary Declarations Under the Insurance Act
Pursuant to section 190 of the Ontario Insurance Act, an insurance may designate the insured, the insured’s personal representative or a specific beneficiary pursuant to the insurance contract or a declaration, including a declaration under the insured’s Will.
Section 171(1) of the Act sets out the criteria for a valid declaration. The declaration must be made by way of an instrument signed by the insured. The declaration must also be an instrument with respect to which an endorsement is made on the policy, that identifies the contract, or that describes the insurance or insurance fund (or a part thereof).
The Issue in Sun Life v Nelson Estate
In 2007, the Deceased’s employer’s group policy with Sun Life was terminated and transferred to Desjardins Financial Security (“Desjardins”). The Deceased completed an application for enrolment and an irrevocable beneficiary designation in favour of the Respondents. She also advised her financial advisor that she had changed the beneficiary for the policy from Justin to the Respondents.
However, after the Deceased’s death, it was discovered that her coverage had remained with Sun Life instead of being transferred to Desjardins because she was disabled at the time of the transfer. As a result, there were two beneficiary designations in the Deceased’s file.
The Deceased’s Last Will and Testament also included a beneficiary declaration that directed the “proceeds of the insurance policy” to be held in trust for the benefit of the Respondents. The term “insurance policy” was not defined in the Will, and the Deceased was insured under two policies at the time of her death.
Thus, the Court was asked to consider the validity of the declaration under the Will and the validity of the change of beneficiary designation in 2007.
Justice Brown’s Decision
After reviewing the facts, the Honourable Justice Carole Brown concluded that the declaration under the Will was ambiguous and did not refer to a specific insurance policy. Accordingly, the declaration under the Will failed.
However, with respect to the change of beneficiary designation form, the Court was satisfied that the Deceased clearly intended for the Respondents to be the beneficiaries of the policy. The evidence before the Court included the Deceased’s statements to the Respondents, the change of beneficiary designation form and the fact that Justin had signed an acknowledgment that the Respondents were the beneficiaries of the policy.
In the result, the Court held that the change of beneficiary designation form was valid within the meaning of section 171(1), and ordered that the proceeds be paid out to the Respondents equally.
Thank you for reading,
Umair Abdul Qadir